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  1. 1. PROJECT PHONEBUSTERS COMBATING TELEMARKETING FRAUD THROUGH PARTNERSHIPS ONTARIO PROVINCIAL POLICE, ONTARIO, CANADA, 1995 THE PROBLEM: Telemarketing fraud deceives consumers into purchasing goods for a fee to obtain a so-called valuable prize worth more than the fee. Additionally, credit card numbers can also become the primary target of the fraudulent scheme through additional unauthorized charges to the cardholder’s account. ANALYSIS: An investigation revealed that 99% of the suspect telemarketing companies were operating out of Montreal. Organized criminal elements were controlling the multimillion-dollar fraud. The lack of a central location for complaints prohibited an accurate assessment of the problem and prevented effective responses by police and government. As a result, suspect telemarketers operated with little risk of being detected or prosecuted. RESPONSE: “Project Phonebusters” was established to combat telemarketing fraud in Canada. The Ontario Provincial police formed partnerships with other government agencies and established a centralized database in order to facilitate the detection and prosecution of telemarketing fraud. ASSESSMENT: As a result of “Phonebusters” and its partners proactively and tactical approach, the losses due to telemarketing fraud were reduced to fifty million dollars in 1994 and thirty million dollars in 1995, compared to one hundred million dollars in 1991 and 1992. SCANNING usually would not otherwise have purchased. As one fraudulent telemarketer testified in the Telemarketing fraud, defined broadly includes Congressional Hearings in the U.S. on the “The all schemes where a telephone communication is Scourge of Telemarketing Fraud: What Can be the principal component used to defraud the Done Against It,” the telephone allows one “to public. The unscrupulous telemarketers’ pitch, paint a picture or an illusion in the mind of a the most common of which—the “Car Pitch,” client that is not factual,” something hard to do the “Cash Pitch,” and the “Cheap Gift Pitch”— in a face-to-face meeting, and to reach many are all attempts to deceive or dupe the consumer more people than can be done in person. into purchasing goods for a fee, to obtain a so called valuable prize worth much more than the The promised prize or item is never delivered or fee. is substantially inferior to that which has been promised. Most of the fraudulent schemes are The telephone is used by the unseen salesperson designed to closely resemble legitimate business who may be using many different aliases to transactions, thereby making successful develop the victim’s confidence, by using detection and prosecution more difficult. various techniques to purchase a product he 1
  2. 2. In addition, credit card numbers can also the problem and prevented a cohesive approach become the primary target of the fraudulent by police and government. These factors scheme through additional unauthorized charges allowed the suspect telemarketers to operate to the cardholder’s account (for no items or with little risk of being detected or prosecuted. services purchased). The merchant bank, not the Because of “Phonebusters,” the Police now have consumer, is held responsible for these a proven coordinated approach both tactically unauthorized charges. As a result of these losses, and proactively to deal with this complex crime. the banks have become more careful in accepting merchant accounts from The question arose as to the possibility of telemarketers.. investigating these complaints as a fraud contrary to the Criminal Code of Canada and The Anti-Rackets Branch of the Ontario convicting the owners, not the companies, of the Provincial Police in North Bay began an crime. It is believed that this type of investigation into telemarketing fraud in early enforcement would be an effective deterrent for 1991. Detective Staff Sergeant Barry Elliott these individuals and also deter others from became interested in a few complaints and operating these boiler rooms in the future. attempted to do some investigative follow-up. It became apparent that little work was being done It was Elliott’s opinion that a successful and the little that was being attempted was prosecution could be obtained but it was first simplistic and ineffective. necessary to gather as many complaints as possible into one central location where they Prior to “Phonebusters, Phase I,”, complaints could then be analyzed to determine the received by police were given low priority or complexity of the problem. treated as civil, because the perpetrators operate from another province, which tends to RESPONSE discourage any in-depth investigations. The police work involved usually consisted of a long Project “Phonebusters” was established in distance call to the company where someone January 1993, to combat telemarketing fraud in would pass himself off as the manager or owner Canada. The Project is a joint effort, combining and would generally satisfy the police by the financial and human resources of the Ontario explaining that the telemarketer in question Provincial Police, which co-ordinates the would be fired or he was no longer with the project, the Royal Canadian Mounted Police, the company because he was not sticking to the Federal Department of Industry Canada, the sales pitch supplied by the company and that this Ontario Ministry of Consumer and Commercial company was indeed legitimate. The officer Relations, the Alberta Ministry of Housing and would generally not go any further with the Municipal Affairs, the Canadian Bankers investigation.. Association, the Canadian Courier Association and the Canadian Better Business Bureaus. The ANALYSIS goal of this investigation is to centralize all complaints and prosecute key individuals and In 1991 Elliott decided to conduct a six-month companies involved in telemarketing fraud country wide investigation by central sourcing under the Criminal Code. all telemarketing complaints across Canada to one location in North Bay. This analysis The information that “Project Phonebusters” revealed that 99% of the suspect telemarketing collects is based on a system called central companies were operating out of Montreal, sourcing. The telemarketing complaints are all Quebec and what appeared to be forwarded by federal, provincial, police and isolated fraud, was in fact a multi-million dollar private agencies, either directly or indirectly to fraud controlled by an organized criminal North Bay. These complaints are analyzed and element. the information entered into a computer Q & A database. The previous lack of a central location for complaints prohibited an accurate assessment of The up-to-date information on new frauds or 2
  3. 3. company activity, along with complaint of being used to launder cheques or money information, is quickly disseminated to the orders which have been obtained by fraud and appropriate agencies and the necessary action is converted into cash. usually taken to block the companies ability to operate. Thus “Project Phonebusters” can The CBA gather statistics on all types of credit continue to complete prosecution and arrest card fraud. Their statistics indicate losses of packages and also continue to reduce the amount approximately three to five million dollars in of victims who are contacted by fraudulent 1992, five hundred thousand in 1993 and less telemarketers and continue to drive the than two hundred and fifty thousand in 1994. telemarketing companies income downward. This reflects a direct result of “Phonebusters” liaison with corporate and credit card security ASSESSMENT members of the Canadian Bankers Association. “Phonebusters” and the CBA has removed credit It is estimated that less than 5% of the victims in card as the primary method of payment and 1994 and 10% in 1995 actually complain mainly nearly eliminated merchant credit card fraud in because of embarrassment. The investigation this area. revealed that the fraud peaked in 1991and 1992 at one hundred (100) million per annum. As a Complaints are now forwarded to Canadian result of “Phonebusters” and its partners Bankers Members Corporate Security Sections proactively and tactical approach, the fraud was who complete a third party investigation and if reduced to fifty (50) million in 1994 and deemed necessary, the closure of those approximately thirty (30) million dollar loss in suspected accounts. This joint action and 1995. cooperation further hinders suspected telemarketing companies from being able to The main reason for the increase in complaints operate which in turn reduces gross sales and the in 1995 is partly due to the new addition of number of .victims per annum. Better Business Bureaus (BBBs) across Canada, as a new partner. The BBBs forward all Due to the large amount of fraudulent sales that telemarketing complaints directly to these telemarketing companies gross, the banks “Phonebusters.” Other reasons for the increase is are further put at risk in evidence involving due to the heightened awareness of business chequing accounts that are suspected "Phonebusters" to Police Agencies across the that loans are issued based on this fraudulently country, and increased public awareness of obtained collateral. As a result when the activity telemarketing fraud through community policing is discovered to be fraudulent, the bank may be and other programs some of which were initiated caught with unpaid loans with limited financial by some of the partners within “Project recourse and suffer losses. Phonebusters.” "Phonebusters" has continued to align itself with strategic partners across the country including As well, articles on telemarketing fraud which the addition of the BBBs and the Canadian have been published in almost every newspaper Courier Association in 1994. across the country, including radio talk shows, television news stories and consumer protection In 1995 Phonebusters has already taken steps to programs such as Fifth Estate and Market Place align itself with Canada Post, Canadian in Canada and 48 Hours, Dateline and Eye-To- Telephone Association (STENTOR) and the Eye in the United States. Federal Trade Commission and the Better Business Bureau in the United States. “Phonebusters’” liaison with the Canadian Bankers Association and the corporate and INVESTIGATION UPDATE credit card security members, and their constant monitoring of telemarketers merchant accounts Phase I has nearly eliminated credit card as the primary method of payment. This liaison has also led Phase I of “Project Phonebusters” targeted: to “Phonebusters” being able to provide suspected telemarketing group who was 3
  4. 4. operating out of the City of Montreal. and companies. The two owner/operators of the surrounding area as of January 1993. group were arrested February 24, 1995 and released on $20,000 cash bail. A pre-trial 'This group was named by the investigators as meeting was held on May 24, 1995. A. trial date Dorsey Group. Between November 1993 and is expected to be set in March 1996 upon January 1995, seven arrest warrants were issued completion of the investigation: based on charges to defraud the public against seven members of the above mentioned group. Across Canada approximately five to seven These charges were based on approximate two thousand victims have been defrauded of thousand victims across Canada who approximately to five to seven million dollars collectively lost approximately two million since January 1993. dollars. This group mainly used the car pitch. The victims all have the same common To date, results of the seven warrants stand as complaint, they were promised over the phone follows: that they had won a major prize and had to send money to purchase a product in order to qualify One sentenced to probation for 24 for the prize. months upon agreeing to testify against others. Group II of Phase II, Mcmahon is associated to 6 telemarketing companies. The leader of the Two are set for pre-trial meeting on group was arrested and released on April 26, August 22, 1995. Three are to set a date 1995. A trial date is expected to be set in March in June 1995. 1995. Victims have been defrauded for approximately one million dollars. One outstanding Arrest Warrant as of March 31, 1995. Group III of Phase II, Langman is known to own/operate approximately 19 telemarketing As a result of the arrest of one of the members, companies across Canada and the U.S., five an agreement was made for his release in thousand victims have been defrauded of exchange for information he provided to approximately five million dollars. Montreal Urban Police. This information has resulted in the arrest and charges of three male Phase III parties in Montreal for the first degree murder of a male victim which occurred in the summer of Phase III which commenced in April 1995 1994. anticipated in April 1996 involves two major groups for arrests Phase II Rost Group I and Artzy Group II are associated Phase II of “Project Phonebusters,” which to approximately 20 telemarketing companies in commenced in April 1994, targeted three the Montreal area each. These groups are groups. Between February 1995 and June 1995, suspected of defrauding approximately ten 8 persons were charged with 16 criminal thousand Canadian victims of an approximate offences. “Phonebusters’” tactical approach has ten million dollars between 1993 and 1995. changed, we will be arresting all persons involved, from the receptionist to the owners, to CONCLUSION AND SUMMARY OF create further paranoia and concern within INVESTIGATIONAL OBJECTIVES telemarketing business. The objectives of “Phonebusters” was to reduce As a result approximately another 20 persons the annual dollar loss both tactically and associated to these companies will be charged proactively throughout Canada. this summer of 1995. Group I of Phase II, Pinsky/Staszower is “Phonebusters” has been able to solve the associated to approximately 30 telemarketing jurisdiction issues regarding the prosecution. 4
  5. 5. “Phonebusters” has established an information network in which it can access and send information to strategically aligned partners which further disrupts the suspect(s) company(ies) ability to operate. “Phonebusters” provides effective and cost efficient services to the Canadian public by avoiding duplication and providing one stop service for complaints. In June 1995 the National Fraud Information Centre and "Phonebusters" agreed to cooperate and all U.S. complaints regarding Canadian based telemarketing companies will be forwarded to North Bay from Washington D.C. daily. As well, "Phonebusters" expects to align itself with all members of the Better Business Bureau across the United States for the for the same purpose. In conclusion, the central sourcing and immediate analysis of complaint data combined with proactive and tactical approach has proven to be the answer in solving the telemarketing problem on a national and international level. 5